BAJA LEADERS DECRY SALES-TAX HIKE

Mexico Senate raises border states’ levy to match national rate

After months of public outcry and political debate, Mexico’s Senate on Wednesday gave final approval to a measure that will raise the sales tax in Baja California and other border regions by 5 percentage points.

The legislation will create a uniform sales tax across Mexico starting Jan. 1 — and erase lower rates for border areas. It has inspired a state secession movement and stirred bitter criticism of federal legislators from Baja California who supported the change. The state’s business leaders are weighing legal action to block the tax hike, which they said will lead to price increases and encourage consumers to shop across the border in the United States.

“They’re causing harm to some 9 million Mexicans who live on the border,” Gov. José Guadalupe Osuna Millán said Wednesday after the measure’s passage. Business owners across the border in California “are already rubbing their hands” in anticipation of more revenue brought by Baja California customers, Osuna Millán said.

Wednesday’s Senate vote raises the sales-tax rate from 11 percent to 16 percent. The legislation is part of a broad tax-reform package spearheaded by President Enrique Peña Nieto, who wants to boost the government’s revenue and reduce economic inequality through actions such as the creation of an unemployment fund and greater financial support for education and infrastructure projects.

Supporters of the changes said they will bring Mexico’s tax-collection structure more in line with those of other mid-tier countries and stop Mexico’s practice of relying on oil revenue to compensate for its low tax collection, which accounts for about 10 percent of the country’s annual gross domestic output.

The newly approved legislation includes a set of changes affecting maquiladora factories, such as elimination of the sales-tax exemption for temporary imports of various components. Other related provisions allow them to become certified to receive a 100 percent tax credit on those imports or post bond until their finished products are exported.

Those measures also would end the preferential corporate income-tax rate for maquiladoras, raising it to the general 30 percent business standard. And it would bring a partial elimination of deductions for certain fringe benefits paid to factory workers.

The changes “are pretty complex,” said José Larroque, principal partner with the Baker & McKenzie law firm in Tijuana. “You need to sit down and understand it, but there are going to be more taxes to be paid.”

Baja California’s top business groups — Coparmex, Canaco and Consejo Coordinador Empresarial — have staunchly opposed the sales-tax increase from the beginning. But as the issue came to a head in recent weeks, the outcry has broadened.

Journalists cornered legislators who supported the tax changes, mostly members of Peña Nieto’s Institutional Revolutionary Party, and demanded that each offer a public explanation for his or her position. A Facebook community that advocates secession, Republica de Baja California, has garnered 131,000 likes. “Baja California for Baja Californians,” one supporter wrote Wednesday.

Members of the Peña Nieto administration have said that residents in Mexico’s border regions, where incomes are on average 27 percent higher than the national average, should not pay less sales tax than those living in poorer areas of the country.